Global bonds poised for biggest two-week loss in quarter century

Singapore: Bonds around the world headed for their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging.

The Bloomberg Barclays Global Aggregate Index has fallen 4 per cent in the period through Thursday. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday an interest-rate hike could come “relatively soon.”

“We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump,” said Sean Simko, who manages $8 billion (Dh29.3 billion) at SEI Investments Co in Oaks, Pennsylvania. “The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented.”

Treasury 10-year note yields fell two basis points, or 0.02 percentage point, to 2.28 per cent as of 9:34am in New York, according to Bloomberg Bond Trader data. The yield touched 2.34 per cent, the highest since December, and has risen 0.5 percentage point since Nov. 4. The 2 per cent security due in November 2026 was at 97 17/32.

“Trump is a game changer,” Park Sung-jin, the Seoul-based head of investment at Mirae Asset Securities Co., which oversees $7.6 billion. “I was bearish, but the current level is more than I expected.”

Yellen, addressing US lawmakers Thursday, signalled the US central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.

The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation.

The difference between yields on US 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.

Trump impact

Ten-year Treasury notes will yield from 2.5 per cent to 2.75 per cent a year from now if Trump pushes through his proposed tax cuts and fiscal-spending policies, said Michael Kushma, chief investment officer for global fixed income at Morgan Stanley Investment Management.

A strengthening dollar and Trump policies that curb trade may hurt growth and limit the increase in yields, Kushma, who helps oversee $406 billion, said in an interview in Singapore.

“We’re still worried about rising US yields,” he said. “In the short term, we think they’ve peaked. They could easily go up again.”

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